Tullett Prebon plc Annual Report 2010
In addition to the hiring programme, action has been taken to reduce costs and complexity in North America including reductions in broking support staff and the closure of six satellite ofﬁces in the region. The ofﬁces that have been closed accounted for around 2% of Group revenue in 2010, mainly in cash equities and energy products, and their closure allows management to focus on the two main ofﬁces in New Jersey and New York. The presidential election in Brazil has delayed the ﬁnal approval of our acquisition of Convenção, one of the leading and most well respected brokers in Brazil, which will facilitate our expansion both in the market in Brazil and in other Latin American markets, and will complement our existing emerging markets activities in North America. We have continued to develop our electronic broking capabilities, focused on the hybrid electronic broking model, developing electronic platforms which complement and support existing voice broker liquidity. This approach is preferred by both clients and brokers as it is better suited to the majority of OTC products for which liquidity will continue to depend on the support of voice brokers, and it facilitates the development and introduction of trade execution methods and other capabilities as necessary to meet regulatory requirements and market demands. We have a well established development process with access to market leading technology and we are well placed to launch new platforms as and when they are required. The Information Sales business has continued to expand its customer base and investment is being made to increase the breadth of the data it offers to customers. The post trade Risk Management Services business has established a signiﬁcant market share in electronic LIBOR reset matching through the tpMATCH platform that was launched at the end of 2009. Revenue from products supported by electronic platforms, together with Information Sales and Risk Management Services revenue, continues to account for one-sixth of total revenue, as no new platforms were launched in 2010. The proportion of that revenue derived from voice-only execution continues to reduce, with an increasing proportion derived from trades conducted through the platforms.
The enduring strength of our business is the valuable service it provides to clients through its ability to create liquidity through price and volume discovery to facilitate trading in a wide range of ﬁnancial instruments. Our strategy is to continue to focus on providing services as an intermediary in wholesale OTC markets, and to continue to build a business with the scale and breadth to deliver superior performance and returns, whilst maintaining strong ﬁnancial management disciplines. Our key ﬁnancial and performance indicators for 2010 compared with those for 2009 are summarised in the table below.
Change Constant Exchange Rates
Broker headcount (year end) Average revenue per broker (£’000) Broker employment costs : broking revenue Broking support headcount (year end)
1,601 540 58.5% 679
1,612 565 58.0% 712
-1% -4% + 0.5% points -5%
Key ﬁnancial and performance indicators Revenue Operating proﬁt Operating margin
£908.5m £152.4m 16.8%
£947.7m £170.8m 18.0%
-4% -11% -1.2% points
Reported revenue in 2010 of £908.5m was 5% lower than 2009 at constant exchange rates. Year end broker headcount was 1% lower at 1,601 but this reﬂects the closure of the six satellite ofﬁces in North America. Adjusting for that action, year end broker headcount was 3% higher than last year. Average revenue per broker at £540k was 5% lower at constant exchange rates reﬂecting the generally lower level of activity in the market and the impact of new hires building up to their full run rate of revenue.
There have been signiﬁcant developments during 2010 in the process of agreeing and introducing reforms designed to strengthen the ﬁnancial system and to improve the operation of the ﬁnancial markets. In the United States the Dodd-Frank Wall Street Reform and Consumer Protection Act has passed into law, and the European Commission has published proposals on the regulation of OTC derivatives markets and on the review of the Markets in Financial Instruments Directive. We support the general direction of these developments, and more detailed comments on them and their potential impact on the business are set out below. Whilst these developments will introduce increased regulation of OTC derivatives markets and changes in the way in which some trades are executed, they reinforce and formalise the role of the intermediary in the wholesale markets for ﬁnancial instruments. There are only a very few highly liquid products that are suitable for execution solely on pure electronic platforms without intervention and support from brokers. We believe that our investments in electronic platforms and associated infrastructure, and our hybrid electronic broking model, means we are well positioned to respond to, and to beneﬁt from, changes in the way in which OTC markets and our customers operate.